Housing market weakens - Bank

Signs that the housing market may be coming off the boil have strengthened after the Bank of England reported a sharp drop in the number of mortgages approved in April, while Nationwide said house prices rose only modestly for a second month in May.

Signs that the housing market may be coming off the boil have strengthened after the Bank of England reported a sharp drop in the number of mortgages approved in April, while Nationwide said house prices rose only modestly for a second month in May.

The trend in mortgages approved by the banks and building societies, but not yet paid out, is often seen as the most forward looking pointer of the way the housing market is heading.

The Bank said only 106,000 mortgages were approved for house purchase in April, down from 114,000 in March and and an average of 115,000 over the previous six months. The total value was also down at £14.2 billion, after £14.9 billion in March, which was in line with the six-month average.

Re-mortgaging eased off, too, with 95,000 loans approved in April with a total value of £11 billion, down from £11.5 billion in March.

Nationwide's measure of house price rose by 0.2 per cent in May after a 0.1 per cent increase in April - both sharply down from a 1.1 per cent jump in March.

Fionnuala Earley, the building society's economist, described this outcome as "sluggish for the second month in a row".

It has the effect of lowering the year-on-year increase marginally to 4.7 per cent, down from a recent peak of 5.3 per cent in March, while the price of the average house rose to £164,632.

Ms Earley noted that since the start of this year most data from the housing market have pointed to a quickening rise in house prices.

The number of mortgages approved has only recently fallen back from a high of 120,000 in December and January - a level of activity last seen two years ago when house price inflation was in double digits.

The ratio of estate agents' sales to their stocks was high, too and builders reported more interest than last year.

Despite that, Ms Earley concludes that the housing market is likely to ease off in the coming months.

"Apart from well-known concerns about stretched affordability among first-time buyers and the rising transaction costs that movers face, there are now further reasons to expect some cooling in the rate of house price inflation," she argued.

"Even arch-hawk Mervyn King (governor of the Bank of England) cautions that continued strong house price growth should not be taken for granted given the level of house prices relative to incomes."

Estate agents report a decline in the number of potential new buyers since the start of this year, while the number of new instructions to sell homes has picked up, Ms Earley added.

"Together these point to some loosening in the market over the coming months as supply rises relative to demand," she added.

The money markets have factored in two increases in the Bank's official rate by next summer, already pushing up the cost of fixed-rate mortgages, Ms Earley noted.

"The impact of demand will depend crucially on whether the Bank of England actually raises interest rates," she concluded.